TMI Blog2023 (6) TMI 1346X X X X Extracts X X X X X X X X Extracts X X X X ..... ever to support the proposition that the effect of the notification has to be restricted in its application to non-business income only. No such differentiation in treatment of business and non-business income is envisaged in the said notification, nor to do we see any justification for inferring the same. Learned counsel does not have any material whatsoever in support of the proposition canvassed by him, nor does this proposition make any sense on the first principles- inasmuch as once the notification is issued without any such specific restriction for application to business income, we cannot infer a restriction in its application. We, therefore, reject the plea of the assessee, and thus decline to interfere in the matter. We uphold the action of the Assessing Officer in including the profits of the assessee s overseas branches in its taxable income in India. Decided against assessee. - SHRI VIKAS AWASTHY, JUDICIAL MEMBER AND SHRI GAGAN GOYAL, ACCOUNTANT MEMBER For the Assessee : Shri C. Naresh For the Revenue : Shri H.N.Singh, CIT-DR ORDER PER VIKAS AWASTHY, JM: These cross appeals by the assessee and Revenue are directed against the order of C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding that if there are funds available both interest free and loans fund then presumption would arise that investment is made out of interest free fund for calculation of disallowance u/s.14A r.w.r. 8D2(ii) when the issue of mixed fund as pending before larger Bench of Supreme Court. More so when no nexus is established by the assessee to prove that own i.e. interest free funds were initiated to make the investment? 2. Whether on the fads and in the circumstances of the case and in law, the Ld. CIT(A) was justified in holding that disallowance u/s.14A is to be restricted to the exempt income, where as in Finance Act 2022, explanation Io Section 14A has been inserted which provides for applicability of the said section even in the absence of exempt income, which being clarificatory in nature has retrospective effect? 3. The Ld. CIT (A) 's order is contrary in law and on facts and deserves to be set aside. 4. The appellant prays that the order of CIT (A) on the above grounds be set aside and that of the AO restored. The appellant craves leave to amend or alter any ground or add a new ground that may be necessary at the time of hearing. 4. Shri C.Naresh appearing on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal in assessee s own case for Assessment Year 2015-16 in ITA No.1767/Mum/2019 decided on 11/12/2020. The ld. Authorized Representative of the assessee submitted that while rendering the said decision, the Tribunal has placed reliance on the decision in the case of Tecnimont Private Ltd. vs.ACIT, 166 taxmann.com 996(Mum). In Tecnimont Private Ltd.(supra) reliance is placed on Notification No.91 of 2008 dated 28/08/2008 to reject assessee s claim. The said notification is inconsistent with the provisions of the Act and hence, the notification issued by Central Government cannot be used to deny the legitimate claim of assessee under the provisions of the Act. 5. Per contra, Shri H.N.Singh representing the Department emphatically placed reliance on decision in the case of Maxopp Investments Ltd. vs. CIT (supra). The ld. Departmental Representative submitted that Hon'ble Apex Court in explicit terms has discarded the theory of dominant purpose for making investments in shares. The Court has made it clear that where the shares are held as stock-in-trade or investment the disallowance u/s. 14A of the Act is triggered, as soon as the assessee earned dividend income on sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and gains from business and profession'. What happens is that, in the process, when the shares are held as 'stock-in-trade', certain dividend is also earned, though incidentally, which is also an income. However, by virtue of Section 10 (34) of the Act, this dividend income is not to be included in the total income and is exempt from tax. This triggers the applicability of Section 14A of the Act which is based on the theory of apportionment of expenditure between taxable and non-taxable income as held in Walfort Share Stock Brokers (P.) Ltd. case. Therefore, to that extent, depending upon the facts of each case, the expenditure incurred in acquiring those shares will have to be apportioned. 40. We note from the facts in the State Bank of Patiala cases that the AO, while passing the assessment order, had already restricted the disallowance to the amount which was claimed as exempt income by applying the formula contained in Rule 8D of the Rules and holding that section 14A of the Act would be applicable. In spite of this exercise of apportionment of expenditure carried out by the AO, CIT(A) disallowed the entire deduction of expenditure. That view of the CIT(A) w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Haryana arising under section 14A of the Act with respect to an assessee bank. It further held that when the shares were held as stock-in-trade and not as investment particularly by banks, the main purpose was to trade in those shares and earn profits there from and therefore section 14A of the Act was not attracted and the expenditure could not be disallowed. The judgment of Maxopp Investment Ltd. (supra) has been duly noted by the Tribunal in its impugned order and in our opinion the Tribunal has correctly disallowed the disallowance under rule 8D(2)(iii) of the Rules. 8. Thereafter, in the case of PCIT vs. PNB Housing Finance Ltd.(supra) the Hon'ble Delhi High Court again following the decision rendered in the case Maxopp Investment Ltd. vs. CIT(supra) and the decision of Hon'ble Apex Court in the case of South Indian Bank Ltd. (supra) held that no disallowance u/s. 14A of the Act is warranted where shares are held as stock-in-trade. The relevant extract of the decision rendered by Hon'ble Apex Court reads as under: 6. With respect to the challenge of the deletion of the disallowance made under section 14A of the Act, this issue is no longer res integra. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ckin- trade , it becomes a business activity of the assessee to deal in those shares as a business proposition. Whether dividend is earned or not becomes immaterial. In fact, it would be a quirk of fate that when the investee company declared dividend, those shares are held by the assessee, though the assessee has to ultimately trade those shares by selling them to earn profits. The situation here is, therefore, different from the case like Maxopp Investment Ltd. where the assessee would continue to hold those shares as it wants to retain control over the investee company. In that case, whenever dividend is declared by the investee company that would necessarily be earned by the assessee and the assessee alone. Therefore, even at the time of investing into those shares, the assessee knows that it may generate dividend income as well and as and when such dividend income is generated that would be earned by the assessee. In contrast, where the shares are held as stock-in-trade, this may not be necessarily a situation. The main purpose is to liquidate those shares whenever the share price goes up in order to earn profits. In the result, the appeals filed by the Revenue challenging the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as vehemently argued that Notification No.91 of 2008 (supra) on the basis of which the decision has been rendered by the Tribunal in the case of Tecnimont Pvt. Ltd.(supra) which in turn has been relied in the case of assessee, is inconsistent with the provisions of the Act, hence, the same cannot be used to deny the claim of assessee, we are not inclined to accept the same. The Coordinate Bench has considered the notification (supra) and its application while passing the order in the case of Tecnimont Private Ltd. (supra). The Coordinate Bench after placing reliance on the decision in the case of Tecnimont Pvt. Ltd.(supra) decided the issue as under:- 7. Learned counsel has shown, in accepting the fact that even though the issue is covered in favour of the assessee by earlier decisions of the coordinate benches, these coordinate bench decisions cease to be binding judicial precedents inasmuch as reasoning adopted therein does not hold good any longer in the light of the decision in the case of Technimont (supra), admirable grace. It is not clear to us whether this approach is to preempt a detailed discussion on merits of the matter, or whether this approach is indeed bonafide s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax credit is in respect of the income of the overseas branches in question of the assessee, or in respect of some other income. We, therefore, direct that in case the assessee furnishes the requisite details of the taxes paid abroad in respect of the profits of these branches, no tax credit has been claimed in respect of the same so far, and in case the claim so made is admissible in terms of the provisions of the related double taxation avoidance agreement, the Assessing Officer will allow the tax credit, to the extent admissible, for the taxes so paid abroad on incomes of the branches abroad earned in tax jurisdictions with which India has entered into double taxation avoidance agreement. While granting the tax credit, the Assessing Officer will examine the provisions of the respective tax treaty, and compute the admissible tax credit separately for each jurisdiction in accordance with the scheme of related treaty. With these directions, the matter stands restored, for the limited purposes of granting tax credit, in terms of the related double taxation avoidance agreements, if, and to the extent, admissible. 9. The action of the authorities below is thus upheld in principle, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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